Forum payment fund is healthy
Griz success, big-name concerts result in surplus
Five years ago, there was concern that the fund used to pay off the bonds that financed the $250 million FedExForum might slip into the red by 2022.
The culprit was an NBA lockout, whose length was unknown, but whose enforcement was keeping FedExForum dark and its revenue streams dry on scheduled game days during the beginning of the 2011-12 season.
In addition to the lockout, the fund had withstood an earlier hit from the 2008 recession, and estimates pointed to a then-$10.8 million surplus being drained by November 2022.
The bonds were authorized in 2002 by the Memphis and Shelby County Sports Authority and debt-service payments are generated from six different revenue streams, including a seat-use fee for all events at FedExForum, a rebate of NBA-related sales taxes and a car-rental sales tax.
Today, the fund is healthier — there’s a $16 million surplus — and the prospects brighter. The NBA solved its labor issues by early December 2011, the Grizzlies are on a successful run of six straight playoff trips and the economy is better.
But Lisa Daniel, managing director of Public Financial Management — the group that advises the sports authority —
is taking a cautious approach.
“What we saw was of course (after) both the economic downturn (in 2008 and ’09) and the players’ lockout was a little dip in both the seatuse fee and the sales tax, but those have recovered actually quite nicely now and are back to pre-2008 levels,” she said. “But what we don’t have is twice the amount of revenue to fill up what was lost. So, while you see the trend is better than it was, there was still some deficit to make up.”
Daniel said there is no imminent stress on the bonds. The Grizzlies’ recent success — the result of a solid foundation of center Marc Gasol, forward Zach Randolph and guard Mike Conley — and a strong concert schedule, including recent appearances by Billy Joel and Blake Shelton, have offset the effects of dwindling University of Memphis attendance the past two seasons.
“Clearly if you look, it makes a difference when (the Grizzlies qualify) for the playoffs,” Daniel said. “We have more games, more opportunities for attendance and seat-use fee.
“On the seat-use fee, we’ve seen a very positive turn on that with (FedExForum) management. They’ve done a great job of attracting new events throughout the year, we get the benefit of every seat, every event. They’ve brought in big concerts like Billy Joel. It is all very encouraging.”
Debt-service payments are made twice a year: May 1 and Nov. 1. Cash flows into senior bonds from four dedicated revenue sources and into subordinate bonds from two sources after a portion first flows into a senior bonds reserve fund.
Senior bonds are scheduled to be retired by 2029 and subordinate bonds by 2034. Subordinate bonds were purchased by a group of unidentified businesspeople as part of the project and are deemed to be at greater risk. They are not guaranteed by the city and county like senior bonds. Subordinate bondholders are paid only after payments are made on senior bonds.
“What we basically see now is that everything has been flowing since the 2008 crisis,” Daniel said. “In fact, there is about $16 million of surpluses that will get drawn over time for debt service payments, but at this point in time they are comfortably making their payments.
“But it is very volatile. We try to be very cautious in the assumptions that we use. But to the extent that there is another economic downturn, or something of that nature in the next 20 years, the nice thing is the grouping of those revenues provide some mitigation of any one downturn. But if we had something like 2008 happen again, it would be a different world.”